沃博聯公司 (WBA) 2007 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to your I-trax third quarter conference call. (OPERATOR INSTRUCTIONS) At this time it is my pleasure to turn the floor over to your host, Hope Van Dyke. Ma'am, the floor is yours.

Thank you. Good afternoon, everyone, and thanks for joining us today. With us from management are Frank Martin, Chairman, Dixon Thayer, CEO, Brad Wear, EVP and CFO, Dr. Ray Fabius, President and CMO, and Jay McKnight, Corporate Controller.

Before starting the call I'd like to read the Safe Harbor statement. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words anticipate, believes, estimates, expects, intends, may, plans, projects, will, would, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are subject to risks and uncertainties which could cause actual results to differ, possibly materially, from what the Company now anticipates. Management has outlined the risks about the Company's business in the section titled, Risk Factors and Management Discussion and Analysis of Financial Conditions and Results of Operations, in the most recent Annual Report on Form 10K and the Quarterly Reports on Form 10Q. These reports are on file with the Securities and Exchange Commission and they should be reviewed with great care because all forward-looking statements that management makes during this conference call or otherwise should be interpreted in light of the risks apprised in those reports. I-trax is not under any obligation to update the guidance or any other statements discussed on this conference call and investors should not assume that the Company would update any of these statements.

With that, I'll turn the call over to Frank Martin.

Thank you, Hope, and welcome everyone to our 2007 Third Quarter Conference Call. We're happy to welcome back Dixon who we are happy to say has had a full recovery from his bicycle riding mishap last quarter thanks in part to his trusted clinician, our own Dr. Ray. We'd also like to welcome our newest addition to the team, our CFO Brad Wear. Brad comes to us with a great deal of experience in healthcare and technology and has certainly hit the ground running and we are thrilled that he is part of our team.

Now onto our results. We've had another great quarter of accelerating revenue growth. Revenue was up over 15% from the prior year period We ended the quarter with 234 sites and 105 customers, which is up from 225 sites and 103 customers at the end of the second quarter. Since the end of the quarter we've opened one additional site and our total now is 235. We've also added a new state, the State of Rhode Island, to our previous total of 34 states bringing us to having health centers in 35 states. We had a great quarter for new business and we now have 268 active or committed sites. The new business includes what will be our largest health center and pharmacy to date for a major customer in the southeast. The pharmacy could be the largest volume pharmacy in the country and we will be meeting these needs with our new wholesale vendor and technology partner, McKesson.

Our new agreement with McKesson went into effect on October 1 and the transition was quite seamless. We anticipate this partnership will provide great strategic and financial benefit in the coming months. We're also very pleased to have opened a new on-site health center for Johnson & Johnson at their New Brunswick, New Jersey headquarters campus that will provide acute episodic care services at the workplace for more than 1,800 employees.

As we said last time, we were awarded our largest multi site deal to date, 15 health centers for Lyondell Chemical Company. We will open our first new Lyondell Health Center in late November and we plan to open two more in December and anticipate opening them at the rate of one per month thereafter. We expect this multi site trend to continue over the coming months.

Before I turn the call over to Brad, I'd like to take this opportunity to announce that we are in the final stages of negotiations to acquire one or more companies that will substantially augment our efforts in primary prevention at the work site. We are extremely excited about these acquisitions and hope to complete them by the end of the year. The combined acquisitions, if and when completed, will add financially to our already accelerating growth rate for next year. Once integrated into our business, we anticipate that the synergies could substantially increase our operating profits, as well as give us access to a much wider employer audience for cross selling wellness and health promotions with workplace health canters.

(Inaudible) insists that I remind you that although we are very optimistic that these transactions can be closed by the end of the year, there is no assurance that they will necessarily be consummated. With that, I'd now like to introduce Brad Wear.

Thanks, Frank. I have been with the company for just over two months now, so this is my first earnings call. I'm very excited to be part of this company and of this management team. I've been in healthcare for over 20 years and have been involved in medical device manufacturing both domestically and internationally. I was CFO of a rapidly growing public multi location healthcare services company as well as CFO of start up companies in physician practice management, disease management, and healthcare IP.

For the last 16 years, I've been involved in companies that have used technology to leverage evidence-based medicine through the physician to improve and document the quality of care. What I've seen in I-trax is what I consider to be the perfect platform to integrate technology, clinical best practices, wellness, and disease management in pharmacy, all through the trusted clinician relationship directly to the patient in the workplace setting. I'm a big believer in the potential for this company and this team and I'm very excited to be here. I loved this business before I ever heard of CHD Meridian. I look forward to getting to know you and I will always make myself available to you.

I'd like to start off by discussing revenue. Revenue for the quarter ended September 30, 2007 were a record $35.1 million compared to $30.5 million for the same quarter last year. Revenues for the nine months ended September 30 were a record $103.2 million compared to $91.1 million for the prior year period. This represents an increase of 15.3% for the quarter and 13.4% for the nine months reflecting a strong acceleration of the growth rate in revenue during the last quarter.

The increase in revenues was attributable to the addition of 23 net new facilities since Q3 of 2006 and same center growth of 1.7%. Recent contract wins have resulted in a substantial number of facilities queued up for implementation throughout 2008. We expect the organic revenue growth rate to remain strong and also anticipate that we will be able to announce strategic acquisitions that will be accretive to earnings in the near future.

Gross margin for the nine months ended September 30, 2007 was 24.2% compared to 24.4% for the same period last year. Due to the true up of health insurance accruals in Q3, the 2006 margin is slightly (inaudible). Absent this adjustment in Q3, 2006, current margins have improved slightly year to date in '07 compared to the same period last year. We remain focused upon gaining efficiencies in pricing and operations in the future and anticipate margins remaining strong.

It's important for us to differentiate our G&A spending to distinguish the costs necessary to run the business from the investments that we make to grow the business. Therefore, we define our core G&A expense to be all G&A spend that is necessary to maintain current operations. This excludes sales and marketing, research, and new product development which are investments made to grow the business. Core G&A also excludes FAS123R expense.

For Q3 '07, core G&A was 16.2% of revenue versus 17.5 for the same period last year due to the very slight increase in spending in Q3 '07 to $5.7 million versus $5.3 million for Q3 '06. For the nine months ended September 30, 2007, core G&A was 16.9% of revenue versus 17.2% at $17.5 million versus $15.7 million. Of the $1.8 million increase in the total dollar value of spend in core G&A for the nine months ended Q3 '07, 1.2 million was increased spending in IT over the prior year period (inaudible) our commitment to (inaudible) with the strategic infrastructure to support our anticipated (inaudible). This significant reduction in core G&A as a percent of revenue is due to operating leverage resulting from the substantial increases in revenue while holding G&A spending relatively constant.

Particularly notable in the Q3 '07 versus Q3 '06 comparison were revenues grew at a rate of 15.3% while core G&A growth was held to roughly half that rate. We believe that information systems are a strategic differentiator for our business and this substantial investment reflects our commitment to remaining the leader in this area. We anticipate continuing this commitment during 2008 while gaining operating leverage on core G&A overall.

Our board of directors recently approved the capital investment of just under $2 million to expand our capabilities to provide strategic information systems and to accelerate deployment of these systems through organic growth and/or acquisition. Investments such as this, while impacting near-term earnings, are investments in the future based upon our strong confidence that these investments will be leveraged due to the dynamic growth opportunity which we now enjoy. Investments in sales and marketing Q3 '07 were $0.7 million compared to $0.6 million for the same period last year. Research and new product development for Q3 '07 was $0.3 million compared to $0.1 million for the same period last year. This reflects our continued investment in our sales pipeline and the breadth of our product offerings. Our significant sales wins continue to validate the strength of this strategy.

As discussed on our last earnings call for second quarter '07, the company has made a decision to relocate our Nashville operations to accommodate our significant anticipated growth over the next several years. We are beyond capacity at our current location and have been able to negotiate more favorable terms for a larger and more efficient space in Nashville. As a result of this decision, the company has recognized a loss of $780,000 during Q3 '07 related to the buyout of our existing lease. This buy down was actually made by our new landlord and will be amortized back to us over the 11 year term of the new lease. Therefore, there was no expenditure of cash on our part.

Despite this buyout, our new lease provides far more space at a reduced cost per square foot. The cost per foot is considerably less, but with the addition of square footage at the new facility, we will be approximately breakeven in relation to our current lease. We are excited that this new space will contain many of the employee health and productivity features that we offer to our clients and will serve as a showroom and laboratory for our capabilities as we live the vision with our own workforce.

Before consideration of the lease termination expense, we essentially broke even for the quarter in net income. For the nine months ended September 30, '07, net income before consideration of the lease termination expense was $654,000. EBITDA before consideration of the lease termination expense for the quarter was $1.4 million compared to $1.4 million for the same quarter last year. EBITDA for the nine months ended September 30, 2007 before the lease termination charge was $4.6 million compared to $3.9 million for the same period last year. This reflects an increase of almost 19% compared to our increase in year to date revenues of just over 13%.

At quarter end, we had $8.7 million of cash and $13.4 million of bank debt outstanding. Our current ratio improved to 1.59 compared to 1.12 at the end of 2006. We used about $757,000 of cash in our operations and about $1.9 million in investing activities during the nine months ended September 30, 2007. This was financed by additional drawings on our existing credit facility. We believe that we have sufficient availability of cash on hand and under our credit facility to finance our operating requirements in the near future.

In summary, our investments in sales and marketing and product development have resulted in record revenues and a robust pipeline of both committed and submitted deals. Our investments in information technology infrastructure continue to add to our strategic advantage. Additional investments in Q4 will position the company with an exceptional platform across our service offering that will enhance our market differentiation and value received by our customers.

Our gross margins remain strong and we are seeing operating leverage on our core G&A spend. We continue to pursue acquisition and disruptive growth opportunities which we expect will add significant additional revenues and earnings in 2008 as well as enhance our ability to provide integrated health and wellness services to help our customers maintain healthy work forces and to reduce health related costs. And now I'd like to turn things over to Dixon Thayer. Dixon?

Thanks, Brad. As you know, our strategy for the past two years has been focused on driving future earnings growth by investing in revenue building and new product development today and containing our core G&A expenses while we grow. This quarter demonstrates to me that it's working. As you heard, our top line growth rate continues to accelerate for the fourth quarter in a row. Starting with the third quarter '06's 5.8% growth over third quarter '05, then 6.9% for the fourth quarter of '06, 9.9% for the first quarter of '07, 15.0% for the second quarter of '07, and now 15.3% for the third quarter of '07. And as Brad reviewed, our core G&A percent run rate also continues to decline enabling us to increase our investment in future revenue and margin building activities.

I think we're steadily closing in on my 12% rule of thumb target for G&A. The reinvestment of these gains into our growth rate is working and already garnering a new level of interest and activity in us. Ray will speak more to this in a few minutes. By the way, I hope you all saw we were in the New York times last Tuesday. Dr. Brume, our medical director for primary care services was consulted and quoted in an article on flying and blood clots, otherwise known as deep vein thrombosis syndrome which is a component of our growing travel medicine services.

Moving on now to our future sales pipeline, the dollar value continues to be significantly bigger than last year's pipeline and the average size of each proposal continues to be much larger than ever before, primarily driven by requests for larger, full service health centers with more emphasis on primary care and pharmacy which is a good thing. In fact, over 70% of the new business commitments in the quarter were either primary care, pharmacy, or both, our most distinctive and value adding service combination. And requests for more multi unit site engagements are coming in at a faster rate than ever before as well.

As we laid out back in '05, our goal has been to continuously shift the sales dynamic (inaudible) legacy approach to a more scalable multi-site approach. Frank just reviewed our process garnering, our progress garnering a continuously increasing string of successes culminating this quarter with our new 15 site Lyondell contract. Let's just stop and savor this for a moment. We've closed a consistently growing number of multi site opportunities within 24 short months of initially conceiving the idea, more than doubling the rate of revenue growth this quarter than what was realized just 24 months ago. Okay, enough savoring. Now we're after even bigger fish and even more growth.

As we said on our last call, we are actively pursuing a handful of initiatives, the scale of which are quite a bit larger than the mainstream basket. Of course these are harder to accomplish so are also less predictable in their probability and timing. But the scale of return on these opportunities is huge if and when we land one. I'm happy to report that we're seeing progress in this area as well.

I'd like to make two more quick points that I feel are nearly as important as our top line momentum. First, as Frank mentioned, we are in late stages of taking a significant step to enhance both our platform for accelerated top line growth and our core G&A leverage with acquisitions. And these will be very welcome additions. Since we're still in the process, we can't say more today, but I'll add that my numerous experiences in integrating new acquisitions have focused us on three keys to success. First, rapid and thorough integration planning that is ready to be implemented within days of closing. So in other words you do that during the (inaudible) phase. Second, clear, measurable financial hard synergies that will be initiated in the first 90 days post closing. And third, integration task force teaming populated by both parties and incentivized to insure we hit our synergy targets quickly.

We estimate this work, if successfully consummated, coupled with our ever increasing organic growth rate, could drive total revenue growth in the neighborhood of 40% in 2008. And of course we'd expect EBITDA and EPS to grow by this proportionately as well. But we'll hold further discussion of specific 2008 guidance for our fourth quarter earnings release.

Finally, regarding our shift to McKesson for all our pharmaceutical needs, in the third quarter we seamlessly made the transition with virtually no significant issues or disruption to this more value added supply partner. And we're now more than halfway through our rollout of McKesson's advantaged pharmacy management system. This will make our pharmacies even more effective and productive going forward in ways our clients and we will both tangibly benefit from.

So in summary, we've built a platform that's now in its fourth straight quarter of accelerating top line growth, now in excess of 15%, while continuously investing in future growth drivers that distance us further from all competitors. In a nutshell, even I, the usually quiet, conservative on the team, summarize our near-term 2008 outlook as I guess bullish. I'm very encouraged by our progress and very optimistic for 2008. But as sometimes we joke around here internally, don't order yet, it gets even better. I'm going to turn to Ray now to discuss a couple of current strategy building tipping points that we have also achieved this quarter that will drive even more tangible success for us in the coming months. Ray?

Thanks, Dixon. Last investor call I focused on efforts in patient safety, critical support, and training as well as our wellness and prevention suite of services. Today I would like to focus on a sea change in our public relationships with our client base and our institutional organization. Many of you are aware of the visibility we have achieved in workplace health at important large employer firms such as the National Business Group on Health. Additionally, you have heard about awards we have received from clients and associations such at the Toyota Kaizan award and the Kodak Supplier Certification Status for 2007, both recognizing our clinical and service excellence.

This past quarter, we received the Disease Management Association of America Leadership Award for the outstanding articles in 2007. This is in recognition of our patent pending integrated disease management methodology that produced three times greater engagement than the traditional telephonic processes.

More recently we have experienced a new level of success. Key clients and institutions are now asking CHD Meridian to participate in presentations at industry conferences. This includes presenting to the Health Employer Resources Organization, also known as HERO, at the request of Goldman Sachs. At the Warden H.R. Leadership conference following an invitation by Credit Suisse. And at the Disease Management Association of America meeting with Goodyear. At the request of the president of the Institute for Health and Productivity Management, we join Toyota to deliver an update on the progress demonstrated by our 20,000 square foot family health center in San Antonio.

It doesn't get much better than that.

Shortly (inaudible) to an invitation from the president of the National Business Coalition on Health, Dixon will present on the impact our health centers have produced at Blue Ridge Paper with their recently retried HR leader. These activities verify the extent to which we are now trusted long-term partners with major clients. And respected thought leaders in the field of workplace health and productivity. As I am sure you understand, these public associations and endorsements are extremely valuable to us and to our shareholders.

There are several themes that are emerging from these presentations. Toyota has highlighted our ability to reduce their employees' random access to care by being able to improve the use of high performance networks of specialists and hospitals fourfold. By placing trusted clinicians at the workplace who serve as health advocates, we can increase the likelihood that employees will access the best available community resources for their particular medical concerns. Credit Suisse and Goodyear have featured the workplace health center as a point of integration. Credit Suisse has spoken to our ability to provide wellness programs, immediate response to medical emergencies, assistance in global travel, and mitigation of communicable diseases.

Goodyear has spoken of the value we provide to a blue collar workforce through occupational health, support of disability management, as well as our primary care and pharmacy services. Goldman Sachs has been asked to present on how they have built a culture of health. They have highlighted the contributions that CHD Meridian has made through our health centers, our health advocacy efforts, and our return to work programs, leveraging the trusted clinicians at the workplace can produce the culture of health.

We help improve the work environment by supporting fitness centers and smoking bans on campus. We can treat employees early for acute illnesses, preventing the spread of infectious diseases, and reducing lost time at work. We can provide guidance so that workers use the right medical resources at the right time. We can promote the use of evidence based screening programs so that cholesterol levels are checked, health risk appraisals are completed, mammograms and colonoscopies are done, and people with diabetes and hypertension are provided easy ways to follow their blood sugar and their blood pressure control.

The medical literature is increasingly documenting that these health efforts are producing gains in the productivity of the workforce. CHD Meridian will continue to provide leadership in this emerging discipline. Back to you, Frank.

Thanks, Ray. In closing we recently had a company meeting where we brought over 250 of our leaders from the field into Nashville for a three day meeting. And one of the important statistics I told them was that in the last three years since we acquired CHD Meridian, we've gone from $67 million in net revenue to $140 million. From $50 million in pharmacy revenue to $160 million. And from 155 health centers to 235. In three years, we have more than doubled net revenue and more than tripled pharmacy revenue and opened 80 new health centers. And our growth rate is only accelerating through 2008 and beyond. What our clinicians have been doing at the workplace for over 40 years has all of a sudden become an overnight success and we have established ourselves with this new and emerging trend in corporate health services.

We continue to accelerate revenue growth, our investment are leverages significant future earnings and we are clearly considered the industry leader, our research and publishing only improves that position. Our hopeful acquisitions will continue to emphasize our leadership as the integrator of benefits and services delivered at the workplace.

And now that ends our prepared remarks and we would like to accept questions. Before doing so however, I would like to remind you of our desire not to talk about specific clients by name so as to respect their privacy in healthcare matters. Thank you and we're open for questions.

(Operator Instructions). Our first question comes from the participants of Dougherty & Company. Please state your question.

Good morning, guys. Good afternoon, I'm sorry. This is Deepak Chaulagai calling in for (inaudible). I just had a couple of questions. It seems like your pipeline of proposal remains high. So in your mind, what is it going to take to get these contracts over the goal line so to speak?

Well I think we've actually moved several of them over the goal lines in the last quarter. We continue to do that. The good news is, as we continue to close, we continue to fill up. So I think we're accelerating the rate of closing, we continue to build the pipeline and the picture continues to look great.

Yeah, don't misconstrue that the pipeline is sitting out there pregnant and waiting to come forward. We actually had quite a flurry of activity this quarter that now we're driving down to final contract on while we now have new requests coming into the pipeline.

So should we expect the activities to continue even in Q4 and going into Q1.

That's what we're aiming for.

Very helpful. On the McKesson deal -- so from that deal will we expect any cost leverage going forward more so than what we saw in Q3?

Yes, we really didn't implement the McKesson deal until the fourth quarter so we will start to see the benefits of that going forward.

Thanks. Just one last question to Brad perhaps. I saw that share count was down sequentially. Is that the norm going forward?

Share count was down?

Right. Diluted share count.

No, we don't see it down nor do we see it coming down. The basic average shares and diluted at the end of this period was 40,949,000 so there's about 100,000 shares additional from the last quarter and I would say that's due to conversions of preferred stock.

Okay, thanks guys.

Sure thing.

Thank you. Our next question comes from the participants of Somerset Capital. Please state your question.

Hey, guys, it's Stu Goldberg. Quick question. A little more color, if you would, on the pharmacy. The potentially largest pharmacy in the southeast?

This is Dixon and I'm all (inaudible) in these things. We are in the process of finalizing contractual details with that client and they have requested very specifically that we not say really anything further about that. But what I would say is that the opportunity is as exciting to us as the largest successes we've had so far and we'll likely eclipse that.

Can I just ask a rough question around the comment of the largest, potentially largest pharmacy? What does that mean?

Well, it's the largest number of employees in one location and as an employer, the largest number of prescriptions that would be concentrated in one location. So the intention would be that we would be filling more prescriptions at that location than any other pharmacy in the country.

Anecdotally, when you take the --

Including a Wal-Mart?

Yes, according anecdotally to the number of prescriptions that go through a single pharmacy like a Wal-Mart or a CVS or a Walgreen's, this will likely be putting more pharmaceutical requests through that one facility through the average or even the upper end of any of those.

And -- I'm frustrated because the question I want to ask, I know where we're going with the answer which is --

Sorry.

Yeah, he apologizes.

You don't know how much I'd love to tell you.

Standard margins or because of the size a different model?

I think we could say that it does not (inaudible) our margins, but I don't want to say more because there are some unique (inaudible) that we're looking forward to.

Okay. All right. And is this something -- never mind. Okay, great. Thanks, guys.

Stu, once the contract has been finalized, we'll get more specific about the details.

Will you put out a press release when it's finalized?

If the client allows us to, yes.

Okay, great.

Thank you. Our next question comes from the participants of Capstone Investments. Please state your question.

Frank, congratulations on the numbers.

Thanks, Jackson.

Could you put some color on the acquisition and could this mean it could include existing on site clinics for a major corporation? And will this be part of your new strategy of accelerating your growth by acquisition of existing clinics?

Well it accelerates our strategy by using acquisitions. I can't give too much more detail on these because we are finalizing negotiations with them as we speak. It will increase our access to very large employers for additional programs and services and I think that's about as much as I'm comfortable saying. It doesn't in any way change our strategy.

It's out of the frame, but it enhances what our offering can be to any one of our clients as well as their clients.

And you said this strategy would be financially very accretive when it's finally announced or concluded?

Absolutely, very accretive.

Thank you. And what about your sales strategy? With your apparent success of the last quarter of closing deals, are there any plans to step up and add more salesmen going forward particularly as the new McKesson deal kicks in with increased profitability?

We are always looking for the right kind of people to join our business in sales, but what we have learned a long time ago, numbers doesn't mean as much as the quality of it. So yes, we're always looking to expand, but we now have a sales force that is just far superior to anything we've ever had in the past and we will continue to add as we grow.

Great. Thanks, Frank.

Thank you, Jackson.

Thank you. Our next question is from Mr. Dick Hume who has a private practice. Sir, please state your question.

Hello, guys. How is everybody?

I'm a lot better now.

Dixon, glad to see you're back in the saddle. And Bradley, welcome aboard. One question I had -- is David kind of hanging around in some kind of a consulting role or is he fully retired?

No, David's listening on the call actually and David continues to work with us in a consulting capacity.

Okay, great. Say, Frank, I have to tell you -- this is probably my I don't know, maybe eighth or ninth conference call with you guys and I was taking notes on the number of times you actually mentioned a client by name and I think I came up with it must have been ten names that you --remember how in past conference calls we'd say, can't you tell us the name? I'm glad to hear that who's who list.

(Inaudible) who is sitting in the room actually has spent two weeks trying to get permission.

That and also, Dick, the beauty to Ray's strategy is that it's been recent that our clients have stepped into public forums and started speaking about what their achievements are and that's what gives us a lot of the leeway.

Yeah, Dick, that's exactly the point. I mean there's been truly a sea change particularly with our higher profile alpha clients.

Yeah, it doesn't mean we can throw those names around lightly. We can only tell you what they have done.

Say, a couple of housekeeping things. Frank, I needed to ask about Deloitte's -- I know that you're one of the 50 largest greater Pennsylvania or whatever growing companies. But in their Fast 500 list, I don't know if you got your PR people on that or not, but you made that list. I think you were number 55 this year after being number six last year, but even being on the list is a credit to the company. But I don't know if you know, but they refer to you, or I-trax as a software company.

Well, it's unfortunate that they refer to us like that. Early on in the days of the Deloitte Fast 50, the origins of I-trax were in the technology space. One of the criteria is that technology is an important driver of your business or you invest heavily in technology, research and development. And under those categories, we continue to be applicable for those awards. We were I guess fourth in the dollar value this year versus first last year, but we still showed over 3000% growth in the last five years which is one of the reasons why we made the Fast 500.

And you heard about our continuous investment in technology, we plan to stay on the forefront. We believe that it's actually an area where we'll continue to distinguish us. So I think they keep emphasizing that.

But again, I-trax is not a software (inaudible)

No, but we can't always control what they write.

Right. The other thing I hear weaving through today's call is the reference to CHD Meridian. I think Brad said he's so glad to be working for it and Ray even referred to CHD. I think we've talked about trying to uncomplicate the I-trax / CHD Meridian -- anyway, I think you know my thoughts on that. Say, finally, I wanted to just ask a question I think I know the answer, but maybe I don't. Do you manage like 30 pharmacies around the country?

Yes.

Are they in the headcount of 235?

Yes, they are.

So are their revenues coming out of those pharmacies? Are those in the $35 million that we just -- help me with the pass through and the pharmacies.

Okay. What we report in our net revenue would be the management and operating costs of running those pharmacies and any incentive payments that we get for operating those pharmacies. What we do not report is the pass through to the client. So in addition to our $35 million in net revenues this quarter, we (inaudible) of pass through pharmaceutical revenue which we do not report.

That went through the 30 pharmacies roughly?

Correct.

Yeah, okay. And finally, I think it's public knowledge, and if it's not, you'll tell me, But I know Toyota is building another huge plant down in Mississippi. I don't think that's new news. They announced that I think several months ago. And it's going to be operational at the end of next year.

Yeah.

Now we're not talking about Toyota in -- I mean --

Remember we're not going to talk specifically about --

No, I know. I understand that.

But we value Toyota very much as a very good client of ours and that's about all we can say.

And fortunately they value us or they wouldn't be asking Ray to present with them.

That's right, but we're not -- we can't say anything more about that right now.

I understand that. Hey, congratulations on the electric boat award. And just -- and I won't dominate anymore, but ask this one question -- I think I read where at Pontiff Point they got a two year lease and if successful, whatever that means, they're going to maybe open up with their growth in Connecticut facility. What might a timeline be assuming it's successful at Pontiff Point?

We hesitate to answer that question --

That's too much detail, Dick. Again, you keep doing such incredible research. We're not going to answer any more.

All right. Well keep up the good work, guys. I'm going to be hanging around.

Okay, our next question come from the participants of Applied Financial Resources. Please state your question.

Hey, guys. I have a great deal of respect for this management team and I appreciate how you guys manage cash.

Thank you.

I've listened to what you kind of say and you guys sound extremely optimistic. I hear words like record, robust, exceptional, strong gross margins, bullish -- but listening to what's being disclosed, it's hard to share that enthusiasm. So I just have some questions just to try to understand this. If the McKesson deal had been in place in the third quarter instead of coming into effect in the fourth quarter, what impact would that have had on EBITDA?

Because it didn't take place, we really can't answer that question.

No, but we'll be able to report on that when we're done with fourth quarter.

Right. But that's one of the reasons why -- you guys get all excited, all these great things are coming, and we have no idea what these things mean. Can you give us any help?

We're going to talk more specifically about next year after the fourth quarter. The McKesson agreement will have a very positive impact on our operating profit in the coming years or we wouldn't have changed it. They are providing technology and other services that will allow us to be more efficient as well as expand. And I think that's about as much as McKesson is happy for us to say and about as much as we --

Also, it's a pretty fine line we have to walk here where with all the rules of being able to document what you say, we are very careful to report as GAAP requires it. But we also feel an obligation to at least give you some insight on whether we're feeling positive, negative, or indifferent about the future. But we can't give you the predictions you're looking for right now for the future other than to tell you that we're quite positive about it.

You mentioned that you're looking at a couple of deals. Are you going to need to raise capital? And if so, how do you anticipate doing that?

Depending on final negotiations, we would likely finance whatever we could finance with our existing lender. There will be a combination of cash and stock if we did need to raise capital. We know that we have several of our existing investors that would be interested in supporting that, but I can't tell you more than that at the time other than the fact that these transactions would be very accretive to us.

You also mentioned that there's been a lot of success in closing sales. Can you just give me some details on that? I might have missed that.

We did indicate that we went up probably about nine deals that were closed since the last quarter. In a single quarter, that's probably more awards than we've ever received.

We also pointed out that the large majority of the commitments we've been able to garner in this quarter were in our pharmacy and our primary care space which tend to be more large and robust clients and accounts.

Thanks, guys.

One other point, Hugh, is that right now there are 34 sites scheduled to be opened over the coming months that we have either committed or contracted in addition to our existing 234. Okay?

Thank you.

Thank you. Our next question comes from the participants of Somerset Capital. Please state your question.

Hey guys, thanks. Two questions. First of all, I just want to clarify something I heard just in the last answer, so did you say you closed nine deals since the end of last quarter? Do I interpret that as September 30th or are you talking about June 30th?

No, I'm sorry, during the third quarter, the June 30 to September 30 quarter, we closed nine deals

Okay. How many units did you open from those nine deals during the quarter?

None.

Okay. So they're all in the backlog?

They're all in the backlog.

All right. Then last quarter we talked about margins and you guys even made fun of me I remember on that call.

We don't make fun of anybody.

And I just wanted to know if the margins in the pipeline and the backlog are still higher than the current average?

Yes they are.

Good. Thanks a lot.

(Operator Instructions). There appear to be no further questions.

Well, once again we'd like to thank you all very much for your continued support. I think as Dixon said in his comments (inaudible) stay tuned. We have lots more in store for the end of the year and to talk about next year. So once again, thanks a lot. Bye-bye.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.